Take Advantage of the Section 179 Deduction

As the close of the year approaches, business owners should look to the IRS Section 179 tax incentive to improve business equipment and technology, maximize deductions and lower taxes.

What is the Section 179 Deduction?

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.

Why now?

While the Section 179 incentive has been active in recent years, there is no guarantee that the rates will remain the same, or that it will be available again in 2019. Businesses who have considered upgrading technology or equipment should take advantage of this incentive in 2018.

To qualify for the 2018 incentive, equipment must be financed/purchased and put into service before the end of day on December 31st, 2018. The purchased equipment must also be used primarily for business purposes, more than 50% of the time. There is still plenty of time to take advantage of this incentive in 2018, as there is no guarantee that the limits will remain the same for 2019.

What’s the difference between Section 179 and Bonus Depreciation?

Bonus depreciation is offered some years, and some years it isn’t. Right now in 2018, it’s being offered at 100%.

The most important difference is both new and used equipment qualify for the Section 179 Deduction (as long as the used equipment is “new to you”), while Bonus Depreciation has only covered new equipment only until the most recent tax law passed. In a switch from recent years, the bonus depreciation now includes used equipment.

Bonus Depreciation is useful to very large businesses spending more than the Section 179 Spending Cap (currently $2,500,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.

*Businesses should consult a tax professional to learn if their business qualifies for Section 179.